07/11/2022 - Climate change could significantly worsen long-term economic prospects and exacerbate inequalities in Latin American and the Caribbean (LAC). It is urgent to advance towards an ambitious and comprehensive green agenda to address its consequences and improve well-being for all. An effective green transition in LAC could potentially add 10.5% more new jobs by 2030, says the Latin American Economic Outlook (LEO) 2022: Towards a green and just transition, presented today on the side-lines of COP27 in Sharm El-Sheik.
According to the 15th edition of the report, this year's economic slowdown, an unstable international context hit by Russia's war of aggression against Ukraine, increased inflationary pressures and reduced macroeconomic policy space make it harder for LAC economies to resume a path to sustainable growth and to protect the most vulnerable. For example, it is estimated that in 2022 vulnerable households in LAC faced an average price increase of 3.6 percentage points higher than the nationally representative household.
Environmental shocks compound these difficulties. Thirteen out of the 50 countries most affected by climate change are in the LAC region. LEO 2022 argues that pursuing a green transition through active mitigation and adaptation policies implemented in a systemic way can make LAC societies more resilient to climate change and promote better development.
The report unpacks the environmental, social and economic benefits that a green transition can generate. For example, investing in renewable technologies can not only substantially cut greenhouse gases (GHG) emissions, but can also provide lower-cost power generation and reduce reliance on imported fossil fuel products.
The region is well-placed to embark on an effective green transition and accelerate progress toward its economic, social and environmental development goals. LAC's share in global GHG emissions is proportional to its share in the total world population (8.4%), slightly higher than its share of total gross domestic product (GDP) (6.4%), but lower than the per capita emissions in other regions with similar development levels. Its energy mix is also greener: renewable energy resources represent 33% of its total energy supply compared to 13% globally.
Against this backdrop, LEO 2022 provides a detailed account of the robust and comprehensive policy actions for advancing just and green transitions in LAC. Five priority areas stand out:
- Further transform the region's energy mix away from fossil fuels and advance towards decarbonisation and electrification across all sectors, especially heavy industries and transportation, while taking steps to increase energy efficiency. In hard-to-abate sectors such as chemicals, steel, road freight, aviation and shipping, investments in low-carbon alternative fuels, including green hydrogen and sustainable biofuels, will be key.
- Design fiscal policies that are sustainable and compatible with just green transitions, phasing-out environmentally-harmful subsidies and leveraging the potential of environmentally-related taxes. Scale-up the development of innovative financial instruments, such as debt-for-nature swaps, and mobilise development finance institutions and the private sector. Adopting regulatory tools including standards and taxonomies for sustainability-linked or green bonds is crucial.
- Promote industrial and productive development policies to transform LAC's economic structures and create more and better jobs, also by adopting circular economy principles and leveraging the blue economy. This will require investing in new technologies and skills, and retraining workforces to seize emerging opportunities. It will also require scaling-up active labour market policies and designing better-targeted social protection systems to support workers negatively affected by the green transition.
- Strengthen institutional mechanisms to foster consensus on the policy choices necessary to advance the green transition. The green agenda can be the cornerstone of a new sustainable social contract: 68% of citizens in the region see climate change as a very serious threat to their country in the next 20 years, a level higher than in other regions. The objectives of Nationally Determined Contributions must be turned into concrete, visible actions, implemented and financed in the context of long-term strategies, such as National Development Plans.
- Build on and expand international partnerships. With half of the world's biodiversity, LAC countries are key players in international climate negotiations. To make the most of new international green norms and regulations, and to manage the impact of policies adopted in partner countries, for example on trade, LAC countries must enhance co-operation with key actors, including private sector and multilateral institutions.
The LEO is jointly produced by the Development Centre of the Organisation for Economic Co-operation and Development (OECD), the United Nations Economic Commission for Latin America and the Caribbean (UN-ECLAC), CAF-Development Bank of Latin America and the European Commission.
